Steve Keen of Kingston University, London gives an important high-level talk on the considerable shortcomings of mainstream economics. Keen argues that a major objective of the discipline is to justify the virtues of markets, which in turn leads them to adopt a strongly ideological posture along with highly simplified models and narrow mathematical approaches to reach conclusions that they find acceptable.

Keen has many informative asides, like the introductory level texts he used in the 1970s were more advanced than many graduate level guides.

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I still find it incredible that this video by Samuelson essentially acknowledging that a key part of his multi-decade “core” textbook is religion, not science, is not more widely shared. OK the person who constructed the complete youtube vid has typos etc and editing probably didn’t help the cause….but still…

For many religions, a truly “key” feature is that, at least for their adhering leaders, their doctrines impart a sense of righteous superiority, of knowing something that the infidels and even the mere laity do not. You cannot burn the heretics without such a conviction that you are in possession of superior truth and insight. And, you can not believe in your own superior knowledge without acknowledging that lesser folk are stuck in the mud of mythos and foolishness.

Samuelson’s remarks seem almost Straussian in their confession that the myth of balanced budgets provide a useful discipline in a democratic state. He’s not saying that his own textbook contains a lie; he’s saying that a correct, albeit perhaps slightly “esoteric” reading of his textbook would yield the insight that balancing the budget in any particular period is an unnecessary constraint for good policy.

I might add, this position leaves open the question of what might constitute a better, more realistic set of rhetorical moral imperatives for public policy on fiscal and monetary policy and how a democratic polity might be educated into a better and more realistic set of expectations and standards for judging the conduct of public policy. Because it is hard to argue with Samuelson’s presumption that political society needs such guidance to coordinate the discipline it places on the politics of public policy making.

Yes there is a fundamental problem with mainstream economics: non-probabilistic decision-making (no proper within-person distribution of uncertainty) in their attempts to enforce things like transitivity means you can’t get preferences with cardinal properties from an individual. Mathematical psychologists don’t have this vulnerability in their models – From Thurstone’s 1928 paper onwards they theorised (and continue to validate) that humans in most instances are inconsistent (to greater or lesser degrees). This allows the analyst, in observing repeated choices from the individual, to make probabilistic statements (and probabilities are on a cardinal scale) such as “Mr Smith has probability of 0.8 of agreeing with the view ‘we should recycle everything, where physically possible’…hence 20% of the time he won’t”…which is fine and allows successful prediction at the individual level, correct aggregation of preferences, and hence better macro modelling.

I would argue the basic flaw is treating money as a store of value, when it is an accounting device, essentially a voucher system.
We think of it as some commodity to mine from society and the environment, when it actually functions as a social contract. Basically a promise.
As such, it is a medium of exchange, but all that is really saved are promises.
So we make lots of promises to each other, but we don’t actually trust each other.
The only way it really works is to store value in tangible assets, like healthy communities and environments, but that level of social responsibly seems remote.

There’s is a consequence for believing that money is a store of value, especially in modern mainstream economics. It is that as an individual, your pay is directly equal to the value of your work in the marketplace. Detaching moral philosophy from economics results in an inability to identify when the system is operating unjustly, such as when the system results in income that does not support basic sustenance (including necessary healthcare). The other consequence is that there is a tendency to view the value of a person or individual based on their income — as the implied value of their existence is tied to what the system says their labor is worth.

That’s a specificly Anglo-American philosophical problem – that anything except for tautologies is bs. It’s where people complain about continental philosophy – that it has content relative to analytical philosophy.

I’d rather have postmodern mumbo jumbo than empty logic – but better even is substance plus rigor.

“It is that as an individual, your pay is directly equal to the value of your work in the marketplace.”

File under marginalism economics becoming and article of faith [tm]. The proponents of such reads like a whose – who of socioeconomic proselytizers.

A long time poster at NC Philip P. wrote a book recently, good luck in putting that under some noses. The best I could get is “he said some interesting things” from someone with monetarist leanings and AMI affiliation. Yet at the end of the day and the long road I find the funding aspect the most egregious e.g. so much is relative to say investment in knowlage a la Philip Mirowski or say Hudson [think tank memory’s].

I often wondered why the US took such a different path from Canada even though both were colonies of the British. In Canada I think that the winter climate and the vast distances between populations played a big part in creating a need for co-operation where the alternative could be death without that co-operation; in the US the revolution against the Brits, the use of slaves and the Civil War helped to identify the self-interest of the individual as the predominate focus especially for the rulers of that society. I am sure there are other reasons for the great divergence but it is interesting to just think about those two.

You heard Keen talk about these two aspects regarding the development of economics. (Also Michael Hudson came to Canada early in his career and told us about MMT!!!)

Also in David Graeber, Debt: The First 5000 Years, on the changing meaning of freedom (p 203 ff.).
Earlier on “to be free meant to be able to make friends, to keep promises, to live within a community of equals.” and
“By the second century AD, however, this had begun to change. The jurists gradually defined libertas until it became almost indistinguishable from the power of the [slave] master.”

In a society that’s used to slavery, it comes to be that a truly free person won’t be encumbered by the dead weight of any of Martin Buber’s I-Thou relationships.

Canada is actually no more homogeneous than the U.S., having a much higher percentage of documented immigrants and having started with two major language/cultural groups at the core. Consider that the U.S. could have reasonably adopted Spanish as a language on the same footing as English as a consequence of having seized 40% of Mexico.

I remember some scandal with the Intermountain School in Brigham Utah back in my day, but seems to have been disappeared.

The Inconvenient Indian
by Thomas King

The Inconvenient Indian is at once a “history” and the complete subversion of a history – in short, a critical and personal meditation that the remarkable Thomas King has conducted over the past 50 years about what it means to be “Indian” in North America.

Rich with dark and light, pain and magic, this book distills the insights gleaned from that meditation, weaving the curiously circular tale of the relationship between non-Natives and Natives in the centuries since the two first encountered each other. In the process, King refashions old stories about historical events and figures, takes a sideways look at film and pop culture, relates his own complex experiences with activism, and articulates a deep and revolutionary understanding of the cumulative effects of ever-shifting laws and treaties on Native peoples and lands.

This is a book both timeless and timely, burnished with anger but tempered by wit, and ultimately a hard-won offering of hope — a sometimes inconvenient, but nonetheless indispensable account for all of us, Indian and non-Indian alike, seeking to understand how we might tell a new story for the future.

Part of the problem is also the Western obsession with ideals, in a reality that is fundamentally composed of polarities, contrast and context. Everything from monotheism to materialism to the economic bottom line is based on the assumption of a singular basis of reality. Yet when we try to isolate it, either the premise collapses into fundamentalism, or it polarizes into opposing sides.

reality — objective, extant reality — does not have polarities, contrast or context as properties of its being. Those things belong to the realms of ideas and language and the way we talk and think and argue. Context, for example, matters to meaning; reality has no meaning. We sentient talkative apes bring meaning with our storytelling and our needy manipulativeness. We bootstrap our own storytelling with dichotomies, hence polarities and contrast. hot and cold, black and white, up and down, good and evil, us and them, light and dark — polarities, contrast and context are the language and concepts of subjective experience disguised, perhaps, as idealism.

reality has no plural. anything else is imagination. and you cannot “isolate” reality — reality is both singular and comprehensive.

the idealism of analysis — neoclassical economics is at its intellectual core, a nearly pure project of theoretical analysis — belongs entirely to the domain of imagination. in analysis, the primary task is to logically isolate the necessary and sufficient elements of the system being studied and their functional relations within that system. So, economic theory is chock full of contrasting dichotomies: supply and demand, cost and benefit, production and consumption, the “real” and the monetary, and on and on. None of that is descriptive or factual and that’s a big part of what’s wrong with economics, as is widely known although not always fully appreciated.

Positive and negative charge. Good and bad as biological binary, as what’s good for the fox is bad for the chicken. As opposed to a cosmic duel between good and evil. Liberalism as social expansion, versus conservativism as civil and cultural consolidation. Male/female….

OK. But, it seems to me that when people leave behind their heuristic dichotomies and start trying to systematically observe and objectively measure reality, they tend to come to understand reality as a manifest unity. So, in their story, light and dark are opposed, and when they get around to doing physics, they discover there is only light. More light or less light. But, you cannot really unshine a spot-dark at an actor on stage. Hot and cold: we discover there is only heat, more heat or less heat. Electrical charge: there are available electrons and a flow of electrons. (And, poor Benjamin Franklin got the direction of flow wrong, which is why positive and negative are mislabeled.) Sex: in our own species, males are just females who are missing a snippet of one chromosome. Ecologists discover that predators are necessary and “benefit” the prey as a group and the ecology as a functioning whole: consider the trophic cascade that followed the reintroduction of wolves in Yellowstone, affecting vegetation and the landscape of rivers.

Left and right in politics is a heuristic, too. I am not sure anyone who has thought about it deeply or studies actual political formations thinks it an adequate tool for understanding the distribution of ambivalence in the expression of opinion, let alone the chaotic way competing/cooperating parties or factions fall into their waltz thru political history.

Yes, but try to define anything without reference to context. You try to distill some elemental property/essence/form/etc, or you try to place it in an ultimately infinite context. So everything seems to exist in that spectrum between the absolute and the infinite.
What is light without space. No vacuum, no fluctuation.
Or galaxies. Energy radiates out, as form gravitates in.
Think of reality as this dichotomy of energy and the forms it manifests. These forms represent the finiteness of the energy and we evolved a central nervous system to extract and clarify form, along with a digestive, respiratory and circulatory system to provide the energy driving it on.
This relationship creates the effect of time, given the energy being conserved and changing, goes from prior to succeeding forms, while these forms coalesce and dissolve, future to past. Tomorrow becomes yesterday, because the earth turns. Potential> actual> residual. As individuals, we go from being in the future, at birth, to being in the past, at death. While the species moves onto future generations, shedding old, past to future. Consciousness goes past to future, as thoughts go future to past.
So it is easy to think there is some singular aspect of reality, but there will always be two sides to that coin.

If I am thinking about the world or discussing my thinking with others, I surely may define some concept by refining what that concept entails and how it contrasts with some other concept and attempt to say something meaningful. Say, I am Euclid and I think up a geometry, with defined axioms and I prove Pythagoras’ theorem to the satisfaction of my fellows. Do I then expect right-angled triangles to grow in my garden?

We may be advantaged by the conceit that the world is a logical place, constrained in its actual being to the logically possible, and leveraging that conceit we may imagine, and imagining, feel that we can understand and manipulate. Yeah team, storytelling East African plains apes!

Keep in mind this late stage blowoff of crazypants US hegemony and casino capitalism is forcing the various civilizations of the Old World to work together in ways they never would have considered otherwise and it will leave the US, barring war, in a situation similar to Russia, after the fall of communism, having to deal with realities that couldn’t be denied any longer.
“What doesn’t kill us, just makes us stronger.”

The Supreme Way is not difficult
If only you do not pick and choose.
Neither love nor hate,
And you will clearly understand.
Be off by a hair,
And you are as far from it as heaven from earth.
If you want the Way to appear,
Be neither for nor against.
For and against opposing each other –
This is the mind’s disease.

Bruce’s point may be true of the non-living universe; I don’t think it apples to the living one. All living things categorise (too hot/too cold, too acid/too alkaline, too salt, too dry are all categories amoeba apply). Much of evolution is about developing the senses to detect and the means to process finer categories – all in the context of the immediate environment.

To understand humans (or any other living thing) is to understand the categories it applies and responds too.

roughly, in my back-and-forth with John Merryman, I am taking a realist position and he’s taking an anti-realist position and we are both talking indirectly about Keen’s implicit critique of the idealism implicit in the primacy neoclassical economics gives to analytic theory.

One of Keen’s chief complaints is that neoclassical economics likes to pretend that money does not matter, a doctrine known as the long-run neutrality of money. The argument for the long-run neutrality of money traces back to Hume’s assertion that the absolute magnitude of the unit of account was arbitrary and irrelevant, an argument that does not really touch the major issue, which is whether it makes sense to think of money only as a numeraire and to focus analysis entirely and exclusively on the putatively “real” economy.

I don’t think money is neutral. I think money is a necessary element in an economic system for investment in the face of uncertainty. My quip about money being a language for writing fictions is part of my general view that institutions coordinate social behavior by creating a kind of socially-constructed virtual reality of cultural convention and custom that papers over the great gaps of uncertainty with what we think we know and can control well enough to get on with it.

Speaking as a realist, I would say that people — and probably all living things — are processing information as part of an attempt to control things (in a cybernetic sense, taking from experience data to use as feedback), which requires heuristics and models, however primitive. (I suppose information processing for control does set biology’s as well as sociology’s causative framework at rather a different angle from that of classical physics.)

I think both Merryman and I are inclined to think that economists who insist that there is a ” ‘real’ economy ” that exists apart from people’s tentative and mistaken beliefs about the political economy are full of shit.

It seems like you are saying something similar: money consists of promises about the future which are necessarily speculative and expressive of intention and expectation and require trust and faith to make operative, but that we go wrong in insisting on an objective reality for the fiction.

The “truth” of the fiction which is money matters rather a lot to making money work and we don’t seem to have the sense of social responsibility sufficient to do an adequate check on the truth of the fiction.

We are at a stage of evolution where abstraction is overwhelming the actuality.
The problems arise with the social forces driving this process onward. We all want to be billionaires and even the billionaires want to be multibillionaires. Basically the bubble has to pop and someone has to advocate for some sense of reality. People think linearly, but nature functions cyclically. Eventually it does come around and bite us in the butt.

When you’re not really sure whether something is right, then belonging to a community that is sure it is right makes you feel confident about it. No one wants to be the only one to believe something they’re not certain about. Hence the various schools of economics (perhaps we should call them churches of economics?) are all cults (and that includes MMT). Anyone who disagrees with the cult is a threat to the confidence of the cult’s beliefs and is liable to be attacked (or on twitter, blocked). There is no cult for the Pythagorean theorem or for Newton’s law of gravity because we don’t feel uncertain about those things.
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Capitalism is a choice, based on values. Fiat money is a choice, based on values. The laws that regulate fiat money, banks, property rights and so forth are choices, based on values. Or at least, SOMEONE made those choices somewhere along the way — the rest of us were born into this system and never had any say in the matter, so we may not be aware that the system is a choice and that there are alternatives.
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Since the economic system is a choice based on values, there are no natural laws of economics like there are natural laws of physics. MMT cannot be a neutral description of how fiat money works in a capitalist system because there is nothing neutral about fiat money or capitalism. There is nothing wrong with making choices based on values, but let’s be honest about it.

I agree with you completely and I think this is likely the most humanistic way to view economics. On the other hand, from a philosophical viewpoint, I often wonder about human values as simple expressions of genetics and environment, so being as immutable as gravity and not subject to any real choice. I haven’t figured out how hard determinism doesn’t lead to nihilism, however.

As a medium of exchange, finance and money function as the circulation system of society. Just as the executive and regulatory functions of government amount to the central nervous system, which evolved through tribal leaders and elders, to kings and nobles, to the semi functional public utility we have today. Finance is just at its; “Let them eat cake.” moment. As monarchs learned the hard way that they are to serve society, not just be served by it, so to will the bankers learn they have other functions than simply growing fat.
What we have today is as if the head and heart told the hands and feet that they don’t need so much blood and should work harder for what they do get.

There was a cult — for a while a couple of them — for the Pythagorean theorem and other teachings of Pythagoras. Their notions about the immanence of numbers, it is generally accepted, have filtered down to us thru the idealism of the Platonists and arguably lives on in the way mainstream economists treat analytic mathematical models as the only proper form for knowledge in economics.

Uncertainty is itself a core conceptual problem for economics: the actual economy as an institutionalized social system is adaptive to and within the limits of human knowledge, but it is really, really hard to say something substantive about how that system is functioning or should function, if you first acknowledge that you, yourself, do not know the answer. Consider the economist’s all-purpose rule-of-self-interested-behavior: profit-maximization. How does a profit-maximizing actor know that she is “maximizing” profit if, in an uncertain world, she cannot fully know and appreciate all the consequences of her choices? It is not possible to make sense of profit-maximization as a concept for a genuinely uncertain world.

Neoclassical economics has built up an elaborate theory of rational behavior, based on thinking thru cases of choice where information and knowledge are sufficient and problems of control are solved. The frontier of knowledge for the study of economics is the actual world of pervasive uncertainty, where surprise, learning and fraud, not to mention unrelieved ignorance and futility, are not only possible, but inevitable. Crossing that frontier into thinking about a real world of uncertainty threatens the value of the established theory, threatens its apparent power to say things of platonic generality about the way the world must logically be and what ‘economic laws’ must obtain.

For mainstream economists, whose livelihood is tied to an ideal theory that feels powerful and is, in fact, a powerful engine for generating analytic rhetoric to deploy in political policy argument, camaraderie in denial about the full implications of uncertainty for how actual economic institutions must be designed to function adequately leads mainstream Economics to its version of the First Rule of Fight Club . . .

Mainstream economists can fight among themselves and will comfort themselves that “everyone” in the club knows about the myriad qualifications that must surround any of the assumptions that attempt to bound or qualify or mimic uncertainty, but they won’t admit to the club anyone who isn’t committed to staying within the bounds that keep alive the legitimacy of a theory that does not and cannot admit uncertainty.

University theology departments everywhere will never run out of thesis material once we accept economics as just another religion. Of course neoliberalism will probably have eliminated those departments as useless by then….

Looking back at the worst times, it always seems that they were times in which there were people who believed with absolute faith and absolute dogmatism in something. And they were so serious in this matter that they insisted that the rest of the world agree with them. And then they would do things that were directly inconsistent with their own beliefs in order to maintain that what they said was true.

I have learned from reading NC for years now, that there are a group of individuals who feel that they are the best ones to control the world via the financial system. They may be motivated by greed, or a desire to direct humankind, or a false sense of their own importance, but they exist and they have formed think tanks, foundations, and other organizations to put into practise all they have learned about controlling the system via finance. It started with the bankers (the early bankers are still with us after all) but has morphed into so-called platform businesses and other monopolies. We have underestimated the power of these people to prevail and that is why we should be making sure that our democracy is not weakened as democracy is the only way that ALL the people have to fight that which is not good for ALL the public. The fight between the self-interest of individuals (whether bankers or not) versus the co-operative democracies is at best an unequal battle when the bankers et al. have obtained all the levers of power; that is, when finance (in the shape of billionaires) controls the legislature, the executive branch, the judicial branch, the banks, the stock markets, the education system, the pollution of the environment, and a goodly part of the population.

“The fundamental thing about neoclassical economics (neoliberalism) is that there’s no need for a government, there’s no need for us to behave collectively, we can all behave as individuals and reach a social nirvana.”

Neoliberalism’s fatal flaw is that you can’t grow an economy on bank credit. Duh! How this hoax-riddled ideology ever got off the ground is beyond me, let alone lasted for 45 years! Government IS essential to protect our most valued social services from becoming exploited by predatory capitalists, so that sick people don’t become more desirable than healthy, violent people aren’t valued to fill up low wage prison factories, etc. It is also the way we grow the economy without having to depend on bank credit, which burdens us with private debt, or was that the point all along?

MARC STEINER: So where does the money come from, then, to invest in infrastructure, in new businesses, and whatever else has to be invested in?

MICHAEL HUDSON: Well, banks don’t invest. That’s a myth. The pretense is that rescuing the banks rescued the economy. But the banks don’t make loans to the economy. Banks don’t make loans to fund factories. They don’t make loans for infrastructure. They make loans to buy assets already in place. They’re privatizing the structure to take it private, raise the rates the people have to pay for services. Essentially they lend to raiders taking over corporations. They won’t help a corporation put in more equipment and hire more people, but they’ll lend to a raider to break up a corporation, downsize the labor force, smash it up and leave it a bankrupt shell. That’s the financial management plan. That’s what they teach in business schools.

So the financial management philosophy that we have is diametrically opposed to what’s needed for economic growth. That should be what people are talking about, because more and more economists are warning that given the rising debt ratios, there’s going to be another crisis. What we should be talking about when we look back on the anniversary of Lehman’s bankruptcy is how to handle the next crisis in a way that doesn’t bail out banks, that bails out the economy by writing down the debts.

If banks have bad debts, they’ve made bad loans. Banks used to be conservative and prudent. But if they make imprudent loans and they say, we don’t care the borrower can’t pay because we’ve sold the whole loan off to a pension fund or a German Landesbank, and somebody else is going to take the loss, you have to restructure the banking system and the financial management, and take it out of the hands of bankers to manage.

If you leave the Treasury Department and the Justice Department and the bank regulators in the hands of bankers, they’re going to loot the rest of the economy. They’re going to take everything they can. So you want someone who’s not a banker to actually do the regulation.

If that fact had been followed, then none of the American banks who lent to people who could not afford a mortgage would have been bailed out and the German banks would not have been bailed so that Greece had to pay back a bad debt that the German banks had made. You can plainly see in those examples how finance capitalism has captured the government to run the economy in their own best interests. The TBTF banks are not interested in the welfare of the people; they are only interested in profit-making, and, I am sorry to say, a lot of the large corporations have the same attitude–profit before people.

Thanks very much for this post.
I’m not an economist and don’t understand high level economic theories at the academic level. I do think when Prof. Keen points out the ‘myth’ part of economics and I compare today’s ruling economic theories with the ascent of neoliberalism and rising inequality and big financial abuses by the FIRE sector… and I compare this with the ruling Keynesian and Minsky theories of the 1930’s-1970’s and the more financially equal societies, and the restraint on financial predations during that time, I wonder if there is a correlation between ruling economic theories and socially/politically allowed or not allowed abusive financial practices.

What’s wrong with economics? Its detachment from reality is a strong starting point. Papers which do nothing more than quote dead idols without addressing anything new or useful. Defending amateur and pointless articles because the author is a friend or regular contributor. Since the field is non-scientific, it is possible to be intellectually and morally dishonest and yet be a major figure in this field.

The new, scientific economics of globalisation was, in essence, 1920s neoclassical economics, and we lost everything they discovered in the 1930s.

What is real wealth?

In the 1930s, they pondered over where all that wealth had gone to in 1929 and realised inflating asset prices doesn’t create real wealth, they came up with the GDP measure to track real wealth creation in the economy.

The transfer of existing assets, like stocks and real estate, doesn’t create real wealth and therefore does not add to GDP.

The real wealth in the economy is measured by GDP.

Inflated asset prices aren’t real wealth, and this can disappear almost over-night, as it did in 1929 and 2008.